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UPDATE: It seems our reader may have the last laugh, letting the house go into foreclosure, then buying it back at a discount.

The long and short of this story is that one of our readers was charged an erroneous $25 fee from his bank, so until they fixed it, he wasn’t going to pay his mortgage. They never fixed it, and now his house is going into foreclosure.

I got a Home Equity Line of Credit (HELOC) in 2006 from Citizens Bank. In 2008 I had to file for personal bankruptcy because my business was forced to close and I had several personally guaranteed business loans. When notified of the bankruptcy, Citizens Bank canceled the draw period on my HELOC – which they certainly had every right to do.

In August 2008 they charged me a $25 annual fee, which the loan documents describe as a fee that occurs during the draw period – they one they canceled. I calmly phoned Citizens Bank to inform them that this fee was now erroneous. The woman who took my call told me (and this is unbelievable for a $25 charge) that she could not tell me whether it would be waived and that I would have to call back later in the week. Customer service was pretty sub-par to start off. I asked the woman if they could call me, and she said no. I asked if they could send me a letter in the mail. She said they would do that and I would have it within 10 days. I never received the letter.

I phoned back 3 weeks later and reiterated the request to waive the fee. This time the woman flatly told me “no”. I explained that since the fee was erroneous as spelled out in the loan documents, it MUST be waived or they would be breaching the agreement. She refused to budge. Again, this is over a $25 charge.

I then sent letters to both the address on my loan documents and their corporate address, which happens to be 5 miles from where I live. I pointed out that the fee should be waived and why. I even copied and highlighted the section in their agreement and included it. I received no response to either letter.

At this point, I needed to get their attention. I wrote another letter, this time indicating that they were in breach of the agreement and I would halt monthly payments ($200/mo) until they waived the fee. Additionally, I said I would not pay any late charges accrued during this time as this problem is entirely Citizens Bank’s responsibility. I received no response from the letter. I stopped making payments in hopes someone might notice, figure out why, and correct the problem so we could all move on with our lives.

Six months later, I received a polite letter from their attorney indicating I was in default and the amount in back payment that was owed. I replied and explained what I told Citizens Bank. I received no further correspondence from that attorney.

Four months after that I received a packet from Citizens Bank telling me that they understand I am having financial difficulties and trouble paying the loan and offered me some loan modification programs. I replied indicating I had no financial difficulty, that this was a customer service issue, and that as soon as they waived the $25 fee and late charges ($10/mo), I would make all back payments immediately and resume monthly payments. I received no reply. I could have been a jerk and took full advantage of their modification program, but I honest and expected them to act likewise.

Four months later, I received a letter from a different attorney with the same story about me being in default and now included $400 in attorneys fees on top of the missed payments and late charges. To this point, there was absolutely no acknowledgment of the issue I presented to them. I replied to the attorney just as I had to the other attorney, again indicating I was not asking for much here and this should be a no-brainer. I actually received a reply! The reply, which I got 2 months later, said “they will waive the $25 service charge and one month late charge but no other fees”. I was flabbergasted – what a half-ass approach to good customer relations! As I was very clear in my prior letter that ALL late charges would need to be waived, I continued to suspend payments.

Two months ago I received a letter from a new attorney, written as if this was the first attorney to contact me on this matter. I wrote this attorney back indicating that the problem stems entirely from Citizens Bank’s error and that all missed payments would be brought current immediately upon waiver of all late charges and attorneys fees. My letter was ignored.

Last month I received a new letter from that attorney group, with no acknowledgment of my response, indicating simply that a foreclosure sale was scheduled for December 15, 2010 and included a copy of the ad that will run in the newspaper. Now Citizens Bank was resorting to bully tactics!

In summary, Citizens Bank is now foreclosing on my home because they have absolutely no interest in doing the right thing and correcting their mistake. They are using the fact that foreclosure in my state does not require a judge to bully me into paying them whatever they say and if I do not, they will kick me out of my house at Christmas time.

I appreciate the spirit of your epic stand, but better use all that mortgage payment you’ve been saving up to get a lawyer if you want to have any hope of saving your house.

UPDATE: Our reader wrote back. He’s got a plan to still come out ahead.

Hiring a lawyer would have cost more than $25. Filing a suit in small claims court would have cost more than $25. In summary, any type of action would have cost more than the fee I was disputing. Too many times in this day and age companies like Citizens Bank charge fees they know they can get away with because the cost of disputing it is greater than the fee. That is the point here.

I am not going to literally let them kick me out of my house, obviously. The option to pay is still on the table, but it isn’t right. Believe it or not, I was advised by my attorney to allow the foreclosure to occur, and bid on it myself. Worst case is it becomes an REO and I buy it back from the realtor at a discount.